The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

Car being loaded on a flatbed tow truck; Wikipedia

Times are tough for the repo man, but that’s probably good for the rest of us.

Delinquencies on auto loans and repossessions are at or near seven-year lows, even though auto sales -- and auto loans and leases -- are on the rise. According to Experian Automotive, total outstanding U.S. auto loans reached $751 billion in the second quarter, an increase of about 10 percent from a year earlier.

Late payments and repos normally rise right along with auto sales, but so far this recovery seems to be an exception to the rule. Analysts cited three main reasons for the favorable numbers.

First, consumers really have become more conscientious about paying their bills -- especially auto loans, since people need their cars to get to work.

Second, loan performance is good because lenders imposed tougher approval standards during the recession, which they were slow to remove.

Finally, a certain amount of math helps the loan performance statistics look better. Delinquencies and repossessions are usually expressed as a percentage of the total number of loans.

In a downturn, more people are likely to pay late, and there are fewer loans being made. Therefore, there’s a bigger numerator and a smaller denominator in the rates of delinquency and repossessions. In a recovery, fewer consumers are distressed and more loans are made. That combination exaggerates how good the numbers are.

There has been a slight uptick in some delinquencies this year, but the increase has been less than analysts expected, considering some of the strongest growth has been in subprime auto loans to riskier customers.

“Even with the total automotive loan portfolio growing, consumers in the second quarter have done an exceptional job of meeting their financial obligations to keep the market strong,” said Melinda Zabritski, senior director of automotive credit for Experian Automotive, Schaumburg, Ill., a unit of the Experian credit bureau.

In the second quarter of 2013, only 0.36 percent of all vehicle loans ended in a repossession, Experian said in a report earlier this month. That was down from 0.43 percent a year earlier, and the lowest rate since 2006, when Experian started keeping track.

Thirty-day delinquencies accounted for 2.38 percent of outstanding loans. That was below the second quarter of 2012, but a slight increase from the first quarter of 2013.

Zabritski said, “Repossession and delinquency rates seen this quarter were lower than expected.”